The cost functions of a competitive firm are: TC = 40 + 2.5Q2. The marginal cost function is MC = 5Q. There are currently 200 identical firms in the industry. The demand function is P = 16000/Q
Find the market equilibrium price and quantity. Explain.
Calculate the profit of a firm at the point of equilibrium. Is this long run equilibrium? Explain.
A new regulation requires each firm to pay an annual license fee of $22.50. Find the market equilibrium price and quantity after the implementation of tax. (Distinguish between short run and long run equilibrium) Explain.
Suppose that instead of an annual fee, the government imposes a tax on the consumption of this product. The tax $t per unit. Show graphically the market equilibrium price and quantity after the implementation of the tax. Explain. (Distinguish between long run and short run)